Business License for Financial Services

In the industry of financial services in Hong Kong, there has been an exceptional growth in recent years due to which Hong Kong has now become the main center on the Asian continent. But in Hong Kong, an agent requires a valid business license for the financial services conducted in the country.

These financial business activities comprise of asset management, providing automated trading services, securities margin financing, advising on corporate futures, securities, and finance, leveraged foreign exchange trading, futures dealing, and securities dealing. Here Startupr has shared all the crucial information on obtaining the financial service business license in Hong Kong.

Introduction

There are different categories of the financial services, and the kind of license for the financial services depends entirely on the type of service that you are trying to obtain. The types of services and the permits associated with them have been explained briefly below:

• Issued by the Securities and Futures Commission, the Corporate License or the Authorized Institution Registration or the Representative License is for those who want to conduct investment advisory services in Hong Kong. These services are related to the fund investment, gold bullion, overseas stock, security, precious metals, commodity futures, and foreign currencies.
• Issued by the Companies Registry, the Money Lenders License is for those who want to operate a business that renders money lending services.
• Issued by the Office of the Commissioner of Insurance, the Registration of Insurance Agents is for those who want to provide services as an insurance agent.
• Issued by the Office of the Commissioner of Insurance, the Authorization of Insurance Brokers so that they can work as an insurance broker in Hong Kong.
• Issued by the Office of the Commissioner of Insurance, the Authorization to carry on an Insurance Business is for those who want to work as an insurer.
• Issued by the Hong Kong Police Force, the Pawnbrokers License is for those who want to operate a pawnshop in Hong Kong.
• Issued by the Hong Kong Monetary Authority, the Registration of Deposit-Taking Company (DTC) for a person or a company to Carry on the Business of Taking Deposits is for those who want to run a business that would take the deposits from the customers.
• Issued by the Hong Kong Police Force, the Registration of Remittance Agents and Money Changers is for those who want to work as a Money Changer & Foreign Currencies, or the Exchange Broker or Dealer in Hong Kong.

A person can choose the specific services that they want to provide in Hong Kong and apply for that particular financial service business license in Hong Kong with the concerned department as mentioned above.

Why financial services in Hong Kong?

In the new era where everything has become digital, and the world is evolving to become a better and more comfortable place to live in, Hong Kong has made it easier for those who want to start a business. And since the necessary funds is all that someone needs, the financial service industry dominates the Hong Kong market. Hong Kong is also an ideal gateway for any international firm endeavoring a path to the Mainland, and even for Mainland enterprises going global.

Famous for the free flow of capital and information, an effective regulatory regime and advanced financial infrastructure, Hong Kong has always been attracting a luxurious pool of financial expertise and professional talent. Also, Hong Kong has a trusted legal system, low taxations, and a business-friendly environment that supports its position as the significant insurance, banking, capital formation, and asset management hub in the world.

In fact, Hong Kong was at the top of the annual Financial Development Report of the World Economic Forum that came out in October 2012, beating the top countries like the United Kingdom and the United States. And it has been at the top many times due to the high scores in the non-banking financial services like insurance and IPO activity.

Not only is Hong Kong at the top for the non-banking financial services but also for the banking services in the world, which is why many professionals want to open up businesses in Hong Kong after obtaining a business license for financial services for the company.

Who needs a business license?

To obtain the financial service business license in Hong Kong, you would need to have some specific services that your business would offer. As per the Securities and Futures Commission (SFC), the following services are noted as the regulated activities in the Securities and Futures Ordinance (SFO) of Hong Kong:

• Asset management services
• Securities margin financing
• Providing automated trading services
• Advising on corporate finance
• Advising on futures contracts
• Advising on securities
• Leveraged foreign exchange trading
• Dealing in futures contracts
• Dealing in securities

If there is any firm that also includes the authorized financial institution which intends to run a business with any of the services mentioned above has to apply for a business license for the financial services.

Licensed Representative of a Licensed Corporation

This rule is the same where even a person who wants to render this service on behalf of any licensed corporation would have to file for the representative’s license in Hong Kong. A benefit about this is that a licensed representative has the right to be accredited to more than one corporation that has the license for the services in Hong Kong.

In addition, a licensed representative doesn’t just need a license to work for the licensed corporation. That person would also need to be approved as a “responsible officer” for that corporation so that they can carry out the regulated activities.

Details on Temporary Licensing for Financial Services

Any foreign firm or person operating a business outside Hong Kong with the same nature of financial services can apply for the temporary license to get permission of operating the same service in Hong Kong as well. Also, for a company rendering financial services, a partnership or sole proprietorship is not an agreeable form of business structure for getting a financial service business license in Hong Kong.

Nonetheless, some specific regulated activities cannot be done by the person who has a temporary license like asset management services, securities margin financing, providing automated trading services, and leveraged foreign exchange trading.

Additionally, the person also cannot hold any client’s assets when under the temporary license which is only granted for three months or not for more than six months in total within a twenty-four month period. So, it is better to apply for the business license for the financial services in Hong Kong to get the permanent license for those who want a lifetime earnings from this business.

License Requirements & exemptions

For the financial service business license in Hong Kong, the following exemptions are applicable:

Leveraged foreign exchange trading exemption

Those financial institutions that have been authorized do not require the registration for providing the services related to the leveraged foreign exchange trading.

Professional exemption

Trust companies, lawyers, and accountants that render services where they offer advise on corporate finance, asset management, futures contracts, or securities, are immune from the licensing requirement. It is only applicable if the advice given is related to the person’s professional practice.

Additionally, the exemption is also for broadcasters and journalists who provide investment advice to people via television/radio broadcasts or publications.

Advising group company exemption

A person is immune from the requirement of the business license for the financial services only if they are rendering the investment advisory services to another wholly owned subsidiaries of the holding company, or the holding company that holds all their issued shares, or their entirely owned subsidiaries.

Dealing with professional investor exemption

As per the obligation mentioned in Schedule I of the SFO, a person does not need the financial service business license in Hong Kong for futures or securities dealing activity if they are working as a principal and deal with professional investors only.

Securities dealer – margin financier exemption

In case you are a corporation or a person who has a license for dealing in securities, there is no need for a separate license for performing securities margin financing activities for the clients who come to you.

Additionally, authorized financial institutions who might not be registered to conduct the operations for dealing in securities, do not need to register for providing the services of securities margin financing.

Incidental Exemption

For those who already have a license for one kind of financial services, there isn’t any need to register again for performing the activities that are related to it. For instance, a stockbroker licensed to deal in securities has a business of investment advisory services, there is no “advising on securities” or “advising on corporate finance” license requirement for offering any securities or corporate finance advice to the clients.

The Prerequisites for the Financial Services Business License

There are a “fit and proper” criteria that has been set by the SFC which the applicant has to satisfy, where the person’s fitness and property would be examined. The same thing takes place for the corporation or institution where all the members of the firm or organization and their property are examined. The following would be considered while examination is done by the SFC:

• Financial integrity, reliability, character, and reputation.
• Capability to provide the regulated activities reasonably, honestly, and efficiently.
• Experience or qualifications concerning the nature of the functions to be executed.
• Financial status or solvency.

The candidate has to satisfy the SFC Compliance Guidelines and exhibit that they have stable and secure internal compliance systems to obtain the business license for financial services. Regarding this, it must be ensured that the company has a good internal control system, qualified personnel to handle the business efficiently, and a proper business structure.

Requirements for the Business License for Financial services – Individual & Corporation

The company that applies for the financial service business license in Hong Kong has to be a corporation incorporated in Hong Kong or a foreign company that has been registered with the Hong Kong’s Companies Registry. Also, the corporation has to employ two officers that are responsible for the regulated activity for which the company is endeavoring to be licensed.

The same person can be employed in more than one corporation proven that the person is “fit and proper” and there aren’t any conflicts in the roles. At least one of the person employed also has to be the corporation’s executive director, and both of them needs to have a representative’s license for the services they offer. The proposed officers’ appropriate experience, knowledge, skills, ability to efficiently supervise and manage the corporation’s business of the classified activities.

As per the Securities and Futures Rules for the Financial Resources, the candidate has to have a minimum paid-up liquid capital, and share capital depending on the kind of regulated activity. In case of many regulated activities, the highest value required amongst the several regulated pursuits that are being applied for.

License Procedure

After deciding to apply for the financial service business license in Hong Kong, and completing all the requirements and application as well, the application and the non-refundable fee has to be submitted in person or through a post to the SFC.

The successful application would get processed in a maximum of two to four months where a written notification of the approval issued by the SFC or the certificate of registration would be sent to the candidate after approval. Additionally, submissions that are incorrect or incomplete would delay the overall processing.

The indications on the license or certificate of registration are:

• The candidate’s name.
• Types of supervised activity that the candidate is registered or licensed to administer.
• The candidate’s Central Entity number.
• The effective date of the candidate’s license or registration.
• The requirements and limitations inflicted on the license or registration (if any).
• The licensed corporations that the licensed representatives are accredited for as a principal.

The license has to be on exhibit in the premises of the office every time, and for more than one businesses, a certified copy of the license has to be displayed in each office. Each registered or licensed corporations, authorized financial institutions, and individuals have to pay the annual fees for the financial service business license in Hong Kong. This should be done exactly one month after the anniversary date of the registration or license.

Rejected applications

If the application has failure to follow the terms, it would be rejected, but SFC would give you a chance to explain the situation. And if after this, it is denied again, the filing of an appeal can be made within 21 days of presenting the form to the Securities and Futures Appeals Tribunal. This process can take up many weeks.

Conclusion

To apply for a financial service business license in Hong Kong is straightforward. Be sure to be well prepared and well knowledged in the processes and documentation needed for obtaining the business license for your financial services. With this information in hand, you are already on your way to starting your business in the financial field.